LIC life insurance premiums attract a GST rate of 4.5%, with 18% GST applied to 25% of the premium in the first year. LIC Term Insurance and Health Plans are taxed at an 18% GST rate. Endowment Plans, Pension Plans, and Annuity Plans are subject to a 4.5% GST rate for the first year.
GST Rate and SAC code on LIC Premium for Insurance Policy
| Description | SAC Code |
| Insurance and pension services (excluding reinsurance services) | 99713 |
| Life insurance services (excluding reinsurance services) | 997132 |
| Reinsurance services | 99714 |
| Accidental death insurance services | 997133 |
| Marine, aviation, and other transport insurance services | 997135 |
| Motor vehicle insurance services | 997134 |
| Other non-life insurance services (excluding reinsurance services) | 997139 |
| Other property insurance services | 997137 |
| Freight and travel insurance services | 997136 |
| Type of LIC Policy | Value of Supply | Pre-GST Service Tax | GST Rate |
| LIC Term Insurance and Riders | Premium | 15% | 18% |
| LIC Life Insurance/Endowment Plans (New Business Premium (NBP) including single premium) | Premium | 3.75%-1st year 1.88%- 2nd year onwards | 4.5%-1st year 2.25%- 2nd year onwards |
| LIC Pension Plans (NBP including single premium) | Premium | 3.75%-1st year 1.88%- 2nd year onwards | 4.5%-1st year 2.25%- 2nd year onwards |
| LIC Annuity Plans with a single premium | Premium | 1.5% | 1.8% |
| ULIPs | Charges | 15% | 18% |
| LIC Health Plans, Car, and Bike Insurance | Premium | 15% | 18% |
GST on LIC’s Term Plans Premiums
Term plans are the cheapest form of insurance as they only cover mortality costs. The GST on term life insurance premiums is 18%.
To illustrate, if a policyholder buys a LIC term life insurance policy at a premium of Rs.10,000, he is liable to pay a GST of 18% on the premium amount, which equates to Rs.1,800.
Furthermore, if a policyholder opts in for an add-on, like an accidental death benefit, he will need to pay 18% GST on the additional premium levied for the rider.
GST on LIC’s Pension Plans or Annuities
For insurance pension plans, including single annuities, where an individual pays a lump sum to get an annual income post-retirement, the applicable GST rate on life insurance premiums will be 4.5%.
However, if a policyholder chooses to pay only a single premium for LIC annuity plans, such a premium will attract a 1.8% GST rate. For example, if an individual pays a lump sum of Rs.10 lakhs, then such lumpsum will be levied a GST of 1.8%, amounting to Rs. 18,000.
GST on LIC’s Endowment Plans Premiums
Traditional life insurance policies bundle investment and insurance elements, a GST of 4.5% is imposed on the first-year premiums, while the subsequent premiums will attract a 2.25% GST.
Note: Technically, a GST of 18% is collected on 25% of the first year’s premium, but it has been simplified to a 4.5% GST rate. Similarly, a GST of 18% is charged on 12.5% of the premiums collected in succeeding years, which has been rationalised to 2.25% GST.
For instance, if a policyholder pays Rs.10,000 as a premium annually, then the GST on the LIC premium of an endowment plan in the first year will be 4.5%, which totals Rs.450. For the premium payments in the subsequent periods, a GST of 2.25% will be charged, which amounts to Rs.225.
GST on LIC’s Health Plans
In addition to life insurance policies, LIC offers health plans to its clients. The premiums of these LIC health plans (individual and family) are levied at a GST of 18%.
To illustrate, if a policyholder buys a LIC health plan for a premium price of Rs.10,000, he is liable to pay a GST of 18% on the premium amount, which amounts to Rs. 1,800.
GST on LIC’s ULIPs
Unlike other LIC life insurance policies, unit-linked insurance products (ULIPs) do not attract GST on their premium. Instead, a GST of 18% is levied on the fund management charges and other cost heads, including premium allocation, policy administration, and mortality charges. This is because a ULIP’s premium is partly invested and partly used for providing insurance coverage, and the investment part is not subject to any GST levy.
Exemptions to GST on LIC Premiums
- Insurance services provided by Insurance Regulatory and Development Authority (IRDAI)
- Annuity plans under the National Pension Scheme (NPS) regulated by PFRDA
- Life insurance services provided under government-run schemes, such as –
- Janashree Bima Yojana (JBY)
- Varishtha Pension Bima Yojana (withdrawn in 2015-16)
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- Pradhan Mantri Jan Dhan Yojana
- Aam Aadmi Bima Yojana (AABY)
- Pradhan Mantri Vaya Vandana Yojana
- Life micro-insurance items with a maximum cover of Rs. 2 lakhs, as approved by the IRDAI
- Any other insurance scheme of the state governments as notified by the Indian government on the recommendation of the GST Council.
Availability of ITC on GST on LIC Premium
Registered GST taxpayers can generally claim an input tax credit (ITC) on their supply of goods and services unless restricted under section 17(5) of the CGST Act, 2017. Hence, life and health insurance policyholders cannot claim any ITC on LIC premiums as these insurance products are meant for personal consumption.
In contrast to individual policyholders, corporate policyholders can enjoy ITC on the GST paid on their general insurance policies. However, as per section 17(5)(b), ITC is not available on their employees’ group life and health insurance plans taken by corporate policyholders unless otherwise required by law.
FAQs
Q1. Are there any tax benefits associated with GST on LIC premiums?
While GST itself does not offer tax benefits, the premiums paid, including GST, can be deducted under Section 80C of the Income Tax Act. This can lower your overall taxable income and reduce your tax liability.
Q2. How to calculate GST on LIC premium?
To calculate GST on LIC premium, multiply the applicable GST rate by the premium charged. The only exception is a ULIP, where GST is charged on the cost overheads. Generally, the final premium includes a breakup of the base insurance premium price and GST charges.
Q3. How does GST on LIC premiums affect my overall tax liability?
GST on LIC premiums adds to the cost of insurance but does not directly affect your income tax liability. However, premiums paid, including GST, qualify for tax deductions under Section 80C of the Income Tax Act, reducing your taxable income.
Q4. GST applicable on LIC premium?
Yes, the indirect tax laws dictate the applicability of GST on LIC premiums in India.
Q5. What is the rate of GST on LIC premium?
The rate of GST on LIC premiums for general insurance plans is 18%.
Q6. Why is GST charged on LIC premium?
Since LIC’s provision of insurance plans is defined as a supply of service under the GST act, thus, GST is applicable on LIC premiums.
Q7. When is GST charged on LIC premiums?
GST is charged on LIC premiums at the time of policy issuance or renewal. The GST is added to the premium amount payable, and the rate varies depending on the type of policy.
